Just like mining, staking is used to validate transactions and reward users for their contribution to the network. But instead of mining, users set aside some of their cryptocurrency to guarantee they can be trusted to become validators.
The staking process is part of a proof-of-stake consensus mechanism that’s used by popular blockchains such as Ethereum and Cardano. It’s much more effective compared to the original proof-of-work consensus mechanism.
What Is Staking?
Staking crypto is the process of locking crypto assets for a fixed amount of time in order to support the blockchain. You are rewarded with cryptocurrency in return for your efforts.
Most blockchains that offer this possibility are running on a proof-of-stake consensus mechanism. In these blockchains, the network users that want to participate by validating transactions and creating new blocks must “stake” a certain amount of their cryptocurrency.
Staking crypto ensures that only legitimate transactions and data are recorded on a blockchain. Users that want to become validators and verify new transactions offer to lock up certain amounts of cryptocurrency as insurance.
They can lose a part or all of their stake if they inappropriately validate incorrect or fraudulent data. However, if they authenticate genuine, legitimate data and transactions, they get rewarded with cryptocurrency.
How to Stake Crypto?
Users can stake cryptocurrency in a variety of ways. If you want to learn how to stake crypto, take a look at the three methods outlined below.
Staking Pools
Crypto staking pools are groups of crypto assets that are pooled together by several users to boost their chances of collecting rewards. Pools allow people with less than the minimum amount of crypto to participate. Furthermore, there is no technical knowledge required to join a pool.
Before joining the pool’s staking procedure, participants need to transfer funds using their crypto wallets. So when you have enough cryptocurrency, you can join a pool and participate by transferring from your crypto wallet.
However, keep in mind that cryptocurrency staking pools charge a commission on your gains, so don’t expect to receive all the earnings. That’s why some people argue that pools are too expensive and hold too much power.
Staking via Crypto Exchanges
Crypto exchanges make it possible for you to quickly and easily stake crypto on proof-of-stake blockchains. The staking feature will show up as an option in your investment portfolio or on a separate crypto staking page.
It’s important to note that certain exchanges take a sizable portion of your initial deposit. So make sure to learn more about each exchange’s terms before moving forward.
On-chain Staking
Individuals with sufficient cryptocurrency to stake may choose to do so on-chain, collecting 100% of their cryptocurrency staking revenues without having to share their earnings with third parties.
This is the most profitable approach to staking, but it usually necessitates some technical knowledge. Furthermore, several cryptocurrencies demand users to have a specific minimum amount of crypto to stake, which makes this process inaccessible to a lot of people.
